Citigroup and Swiss-based trader Mercuria Energy Group are battling in a London court over payments relating to metals-backed financing arrangements in China valued at over $270 million.

LONDON—Citigroup Inc. and Swiss-based trader Mercuria Energy Group are battling in a London court over payments relating to metals-backed financing arrangements in China valued at over $270 million.

Banks have lent hundreds of millions of dollars to commodities traders in China in recent years, using metals such as copper, iron ore and aluminum as collateral. However, evidence suggests that large quantities of metal stored at the...